Boards urged to set up appropriate incentive structures

KUALA LUMPUR: Boards must consider the establishment of appropriate incentive structures to ensure that the management is aligned to the approach, said Securities Commission (SC) chairman Tan Sri Ranjit Ajit Singh.

“Boards are under greater scrutiny as there are concerns that market forces and other exogenous factors are causing short-term priorities to compromise long-term interests,” he said in his keynote address at the International Corporate Governance Network (ICGN) annual conference 2017.

“There are two important aspects to consider with long-termism – firstly, it must be kept relevant and secondly, its success depends on the capabilities of the board members.

“Policymakers should recognise the nature and context in which businesses operate to bring a better understanding in corporate strategy and strike a balance in combining long-term and short-term approaches with the absence of abuse,” he said.

Ranjit said businesses were encouraged to prioritise sustainable value creation over a cavalier approach towards short-term earnings as advocated by the ICGN.

For public companies, long-termism called for reinforcement in the ability of boards to govern like owners by solving issues stem- ming from dispersed and disengaged ownership, he said.

Moving forward, he said the SC had formulated strategic considerations to adopt a carefully calibrated and non-reactive approach to CG.

“This includes several developing themes that are particularly significant to Malaysia’s evolving CG landscape,” he said.

The SC recognised the importance of incubating good governance practices among nascent small and medium enterprises while continuing to leverage technology to enhance internal governance compliance and practices, Ranjit added.